NB: This is a guest article by Jared Simon, chief operating officer and co-founder of HotelTonight.
By the end of 2012, venerable American retailer Nordstrom was operating more discount Nordstrom Racks than flagship department stores.
With its hard-earned reputation for customer service and high quality inventory, this might seem an odd strategy. However, Nordstrom recognized early on that customers aren’t robots; the same customer will have different needs and desires at different times.
By offering both the flagship as well as the Rack experience, Nordstrom has found that both businesses benefit.
As Rack President Geevy Thomas put it to the Seattle Times earlier this year:
“Many of our customers who’d like to try a new brand have the opportunity to do so at 40 to 60 percent off at the Rack.
“And when they get accustomed to certain brands, they want the newest, latest, greatest thing. That’s when they go across to our full-line store and get it the day it comes out.”
Figuring out how best to be wherever customers are with products they want at prices they will pay has always been one of the great challenges – and opportunities – for consumer-focused businesses.
With the travel industry’s increasingly intricate distribution infrastructure and the endless variety of available lodging products, perhaps no businesses experience this challenge more than hotels. And the growing prominence of mobile commerce has only exacerbated the issue for hoteliers.
When we first began working on HotelTonight in 2010, our goal was to create a simple way for hotels to take advantage of the opportunities presented by mobile commerce, while minimizing risks to and displacement of their other customer acquisition strategies.
While we now offer a mix of parity and discounted rates, we started with discounted rates and invented this as a way for hotels to match unsold inventory to guests who hadn’t even necessarily been looking for a hotel.
We further targeted only those guests who had no loyalty to any particular brand or property.
We took pains to add innovative features to force this focus, like limiting our results to only a handful of hotels and rotating them every day to ensure the lineup would remain unpredictable, as well as delaying the daily sale until noon in each market.
These features served to limit our potential market, a trade-off we were willing to make in order to make the app that much more valuable to our hotel partners.
Imitation isn’t really the sincerest form of flattery
As our concept caught on with consumers and hotels throughout 2011, the big incumbent OTAs began to offer their own versions of last-second mobile offerings.
However, appealing to just a subset of the market is not a viable option for such large companies, so the big OTAs needed to substantially broaden the market. Instead of offering targeted discounts only to non-loyal customers using smartphones to book unexpected hotel stays, the OTA’s focused on targeting anyone with a smartphone.
They dropped the limited results and the unpredictable offers and began pressuring hotels to offer discounts every day on their mobile apps, without regard to who those discounts were reaching and their particular needs.
It wasn’t long before astute industry observers began noticing problems with that strategy.
Remarking on a hotel that published a same-day discount every day at 5pm, HeBS Digital’s Max Starkov argued that rather than attracting incremental guests, the strategy was just training the hotel’s existing guests to wait until the last second to book instead of booking ahead of time at the hotel’s regular rate.
Others have since posted similar warnings, and HotelTonight has gotten caught in the middle as “mobile” has increasingly been equated with “ubiquitous discount” by the big OTAs.
We agree – discounting on mobile is bad
We agree that offering same-day discounts each and every day on mobile devices is bad strategy and will only train customers to wait to book.
We would never advocate this strategy for any business, let alone a hotel, because it destroys the credibility of the hotel’s regular rate strategy and creates what is essentially a new BAR.
But even more importantly, it attracts exactly those customers the hotel doesn’t need to attract – loyal customers who already know where they want to stay and will wait to book at a discount.
By contrast, with HotelTonight’s more targeted rotational model, we have found that more than 60% of our guests did not plan on staying in a hotel before they picked up the app that day, and more than 90% had never stayed in the hotel they ultimately selected on HotelTonight.
These results prove that by utilizing a tailored approach with real restrictions, hotels can indeed take advantage of the impulsive nature of mobile users without negatively impacting their existing rate strategy.
There’s a reason Nordstrom is doubling down on outlet stores and the rest of the industry is following suit. The first outlet mall didn’t appear until 1974, but by 2000 there were more than 300 across the US.
While no one would think about reserving a section of a thriving department store to discount the hottest designer clothes every day, there is definite value in creating a discount store that requires a 45-minute drive, only carries last year’s styles, or employs other similar “fences”.
By tweaking their existing in-store experience with subtle but meaningful restrictions to create the outlet experience, the most successful retailers have learned that they can attract an entirely new set of customers, many of whom may eventually graduate to the flagship store.
Embracing mobile
Because of the demographic and behavioral differences of its power users, the rise of mobile has offered hotels a unique new tool to attract incremental customers.
But savvy hoteliers know that that the oversimplified “mobile=discount” strategy hyped by the big OTAs comes with significant risks that almost certainly outweigh the benefits.
Fortunately, tailored apps that offer a more thoughtful, nuanced Nordstrom Rack model of seizing the mobile opportunity exist and offer a safe alternative for hotels.
There’s a whole generation of new customers waiting to discover your hotel – don’t miss the opportunity to showcase it!
NB: This is a guest article by Jared Simon, chief operating officer and co-founder of HotelTonight.
NB2: Watch mobile image via Shutterstock.
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thx Jared, interesting piece. Would be interested to know how behaviour on HotelTonight changed as a result of mobile=discount strategy of the OTAs came in?
did it affect your “more than 60% of our guests did not plan on staying in a hotel before they picked up the app that day, and more than 90% had never stayed in the hotel they ultimately selected”
was there any impact on conversion with consumers not getting the discounts they expected?
Hi Linda – as you might expect, we held our breath when the OTAs started launching their versions of the tonight-only model. But we were pretty amazed to find that it really didn’t have any effect on our conversion rates or on the types of guests we were sending to hotels. Our conclusion is that because we focus exclusively on mobile and exclusively on the same day use case, our presentation to consumers is very different (rotating display, highly merchandised hotels, etc.) We’ve received anecdotal feedback from our hotel partners that when they post similar offers on HT and on the OTA versions, they always get more same-day production on HT – while not definitive, that seems to confirm the notion that the more focused approach on HT yields more of what our partners want, and less of what they don’t.
Hi Jared, very interesting, I always thought about how this last minute discount deal could ‘train’ customers to wait for the best rates. Good to know there is an strategy for HotelTonight. One question: how does HotelTonight deal with channel managers in terms of applying restrictions, as channel managers enhance the chances of the unsold rooms get fed into your system. Do you currently work with channel managers?
Hi Andre – yes we work with channel managers. Inventory loaded into our system via channel managers is still only available for same-day bookings, so all the same restrictions apply.
Jared,
Very insightful. am pleasently surprised to find out you have been able to turn your consumer strategy into a partner pitch to the hotels revenue management and distribution needs.
I have been a strong anti last minute discounting advocate, and will remain. However I can really appreciate you smart strategy in terms of offering consumers a limited subset of results to increase focus, leading to a faster decission process and high conversion ratios I presume. In any case you turned this into a convincing hotel friendly pitch.
My questions for you:
- Will you allow hotels to offer BAR on regular days, and discounts on distressed days? Or will you only take discounts.
- What discount % is HT asking?
- Can hotels offer packages at a discount of face value, to avoid too much of a hit on their net income?
- How much do you charge hotels?
- Do guest pay you or the hotel?
Here is the thing, I appreciate your well crafted pitch. But as a revenue manager I am interested in the numbers.
At a panel discussion at BTO in Florence last November, we covered the challenges of mobile. Below some of the hot points;
How do mobile distributors deal with lack of same day availability or discounted rates during high demand and compressed days? Will you accept BAR rates? Will you only limit your offer to dsicounted rates and accept you will not be able to include quality and popular properties? Or will you ask hotel to provide you with discounted offers as a trade off vs. your production during needy times for hotels? In short what comes first, consumer proposition or hotel partnership as you outlined above.
Of course you will be able to count on exponential growth for the first few years by penetrationg markets and expanding geographically. So the key question is what will you do once you hit a ceiling? Will you expamd from same day, and ask hotels for same week discounts? You have investors, and they are interested in growth. So at one point you will have to give up your hotel friendly approach to be able to deliver this if Iam not mistaken. At that poit you will need to negotiate a larger time frame of discounted rates with your hotel partners and trade off production with them to get there.
Or will HT really stick to their unselfish, hotel-partner, anti-adr erosian, non-canabalist same day policy as you outlined above?
As you can see there is a lot of scepticism out there that we would love you to respond to.
I very much respect your business model and think HT has a bright future. As a revenue manager, I can’t help it to have my doubts about short term and long term impact.
Nevertheless, I am willing to give it a try. In the end, if the hotel uses the distribution tools at hand smartly in its best interest, great resuts can be achieved. Just as long as you are in control and make sure your decissions do not lead eventually to erosion of other segements, like direct sales through your own website and call canter.
Look forward to your feedback.
Cheers,
Patrick @ Xotels
Hi Patrick – great questions and I’ll engage with you directly to answer them in detail. I will tell you that we have no discount requirement – we will display BAR rates on non-need days and discounted rates on need days, and that is always the hotel’s decision. We message to our users when there is market compression and to expect higher rates, and at those times they use our app purely because of the ease and simplicity of our booking process.
I appreciate your point about potentially losing our supplier-friendly disposition, and I’ve seen that happen in our industry before. However, as a purely same-day booking tool, we needed to architect our company very differently than an OTA would. It is pretty core to our (and our board’s) growth strategy that we must create and maintain tools and products that are equally useful and valuable to both of our key customer sets (hotels and bookers). A shift in this strategy would be pretty fundamental and unlikely…